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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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The taxation of pension income: Social security pensions: how the State Pension is made up

Part 9 Chapter 5 ITEPA 2003

The new State Pension was introduced on 6 April 2016 for those who reach State Pension age from that date. People who reached State Pension age before that date will continue to receive their State Pension under the old rules (including those who choose to defer beyond that date).

The amount of new State Pension payable (for those who reach State Pension age from that date) is based on a person’s individual National Insurance record.

The amount of State Pension payable under the old rules (for those who reached State Pension age before 6 April 2016) may be affected by a number of factors.

  1. Basic pension - if the National Insurance contribution record is satisfactory the amount will be the standard weekly rate quoted on table 1 of form P242. Most pensioners receive more than this basic amount because of items (b) to (e) below. If the contribution record is unsatisfactory either a reduced rate or no pension at all will be payable.
  2. Additional pension - this is the earnings-related part of a retirement pension. It depends on the earnings since 6 April 1978 on which the claimant has paid National Insurance contributions as an employee.
  3. Guaranteed minimum pension - where a pensioner was in an occupational pension scheme before retiring, he or she will normally receive a guaranteed minimum pension (GMP) as part of his or her occupational pension.
  4. Graduated retirement benefit - this depends on the graduated National Insurance contributions paid by employees when the graduated pension scheme existed (1961 to 1975). It is also known as graduated pension.
  5. Age addition - this is an extra 25p a week for any pensioner aged 80 or over.
  6. Increase for dependants - if a claimant gets some basic pension, it can be increased, subject to certain rules, for the following kinds of dependant:
  • a spouse
  • a childminder
  • one or more children

The increase is the income of the claimant, not the dependant. The taxability of dependency additions is explained at EIM76102. Child dependency additions are not taxable (Section 645(1) ITEPA 2003).

Deferring retirement - extra pension may be earned by deferring retirement beyond the State Pension age (EIM74601).